Liquidity Provider and Forex Market – Main Nuances


Information That You Need to Know About Liquidity Providers

Today the international market is very attractive for those who want to make high profits and are thinking about how to start a forex business. Every day, a lot of transactions are concluded here (the total volume exceeds 6 billion), and thousands of traders are constantly buying and selling assets. And it is important to ensure high-quality market performance, as well as instant execution of transactions. Here brokers and market participants are assisted by a liquidity provider. Let’s talk about the features of these helpers.

Basic Terms and Responsibilities of Liquidity Providers

Liquidity Provider (LP) helps both brokers and traders. There are over three thousand platforms registered on the market today and the competition is very high. Moreover, many new players are thinking about how to start a crypto exchange. It is obvious that brokers must constantly improve and offer clients the best possible conditions. One of the important advantages is the speed of order execution.

Imagine a situation where the white label trading platform operates independently, without cooperating with a liquidity provider. In this case, the order list contains only transactions made by registered and authorized users. This means that a trader may not always be able to close a trade instantly. For example, selling an unpopular pair (GBP/AUD). Let’s say a client wants to purchase 100 units, but the book at that moment has only 25 at the required quotes. This means that the trader has to wait a long time or buy the asset at an inflated price. Obviously, this situation causes dissatisfaction on the part of the user and reduces the credibility of the broker.

An important point that is also worth noting is the mediation of liquidity providers. Liquidity aggregator provides excellent communication between brokers, various hedge funds, and other important market participants. This approach allows us to guarantee a high speed of order execution at the desired price. Including several trading pairs at the same time. Thanks to this, traders can act as efficiently and correctly as possible to start a cryptocurrency business by trading digital assets.

Market Makers and Liquidity Providers – Different or Same?

Some novice traders think that liquidity providers are market makers. Yes, the two terms have common features, but there are also important differences that you need to be aware of.

Market makers are interesting players in the Forex market. Even a large company or broker can be a market maker. The bottom line is that this category can influence the market. If the white label crypto exchange does not cooperate with the liquidity provider, it itself connects users to each other. All transactions for the purchase or sale of assets are secured using the order book. This model is also called “A-book”. This approach assumes liquidity providers as intermediaries. Thanks to them, banks, hedge funds, and other major players can transact and influence the market.

It is also worth mentioning that the market maker is responsible for order fulfillment and trade timing. The Asset Buying and Selling Book is a provider of Forex channels. At the same time, LP are special institutions that provide high-quality communication between forex prime brokers and the market makers themselves.

This information allows us to conclude that market makers are divided into two groups. These are large players (international banks, hedge funds, intercontinental corporations) and individual affiliates working with private traders and small brokers who are thinking about how to create a cryptocurrency exchange.

Important Information About Liquidity

  •         High liquidity is one of the most important categories that both traders and brokers are interested in when creating a crypto exchange. Several important features of this characteristic should be noted.
  •         The spread is approaching zero. Such an indicator is capable of causing losses. Because in this case, low liquidity provides a high difference between the cost of buying and selling assets.
  •         Price Slippage. This situation becomes a reality when the platform is unable to close the deal at the desired price. At this moment, traders are waiting for the desired indicator (the expected price may be higher or lower than the current one).
  •         Gaps. Another drawback of low liquidity. In this case, some quotes have gaps of several points.

Every trader strives to partner with the best white label cryptocurrency exchange that offers the greatest number of opportunities and provides high liquidity. Newbies who are thinking about how to create a crypto exchange also want to find a quality liquidity provider. B2Broker offers low spread, low margin requirements (1%), accepts bitcoin payments and provides access to major market makers.

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